OPEC + to boost oil production after the Saudi-Emirati settlement deal

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(Bloomberg) –

OPEC and its allies agreed to gradually add more oil supplies to the market, ending a two-week spat between Saudi Arabia and the United Arab Emirates.

The unusual public feud that tested the cartel unit was resolved in a classic compromise – Riyadh met Abu Dhabi halfway in its demand for a greater production limit.

“Consensus building is an art,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters after the meeting. The deal is a testament to the strong bonds between members and shows that “OPEC+ is here to stay.”

The agreement means the organization will boost production by 400,000 barrels per day each month from August, and continue until all of its halted production is revived. According to a statement from the group, the deal will also give the UAE and several other countries higher baselines on which production cuts will be measured, starting in May 2022.

The UAE’s level rose to 3.5 million barrels per day, lower than the 3.8 million barrels it initially requested but higher than the previous baseline of 3.17 million.

Display pressure

A truce between the two longtime allies will ease looming supply pressures and reduce the risks of inflationary oil prices. It also puts an end to a diplomatic issue that has worried traders, as fighting between the two longtime allies threatens to unravel the broader agreement between the Organization of the Petroleum Exporting Countries (OPEC) and its allies that has fueled a recovery in crude prices.

The multi-faceted agreement means several things for the oil market. It gives consumers a clearer view of how quickly OPEC+ can recover the 5.8 million barrels per day of production it is still locking up, since making deep cuts last year in the early stages of the pandemic.

Prince Abdulaziz said the baseline adjustments will not change the pace of the 400,000 bpd monthly production increase when they come into effect next year. He said the group would continue to meet every month, including a market review in December, and could adjust the schedule if necessary.

The story continues

“The monthly meetings and the December review tell you that it’s all modifiable,” said Bill Farren Price, director of research firm Enverus. “So oil bulls should read this as positive – OPEC+ supply management continues

internal tensions

The agreement also resolves old grievances that have caused tensions within OPEC+ since late 2020. The UAE blocked an agreement earlier this month, arguing that the way its quota was calculated was unfair because it did not reflect a costly expansion of the country’s industry.

The feud has been particularly bitter, and tensions have transcended oil diplomacy amid the growing economic rivalry between Abu Dhabi and Riyadh. Each country’s ministers used media interviews to make their case, sparking memories of the 2020 Saudi-Russia price war, as well as earlier threats from the UAE to leave the cartel.

With a successful deal in the bag, the two countries underlined the strength of their relationship.

“The UAE is committed to this group and will always work with it,” Energy Minister Suhail Al Mazrouei told reporters after the meeting. He thanked Saudi Arabia and Russia for keeping OPEC+ together and promoting the constructive dialogue that made it possible to reach an agreement.

(Updates with a comment from the Saudi Energy Minister in the third paragraph).

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